North Slope-to-Fairbanks natural gas line promoted

Posted: Tuesday, February 01, 2011

By RICHARD MAUER

ANCHORAGE — So, you don’t believe TransCanada will ever get enough customers to build a gas line to the Lower 48 or Valdez? And you think it even more likely that Conoco Phillips and BP’s Denali gas project is doomed, since it has neither the state license nor the half-billion-dollar subsidy that TransCanada has?

And that bullet line from the North Slope to Southcentral Alaska: Do you want to spend three times as much as you do now on gas, for the next 50 or so years?

Enter the “stub to hub” line, something Anchorage businessman and financial adviser David Gottstein has been quietly pushing for the last year and a half. His idea: The state should finance, through bonds or direct investment, a big-diameter gas pipeline from the North Slope to a hub near Fairbanks, perhaps at Livengood.

From there it’s just a short jaunt to gas-starved Fairbanks and close enough to Anchorage and Kenai that a utility could afford to finance a pipeline to take gas to Southcentral for local consumers, Gottstein said.

“The private sector will take it the rest of the way,” he said in a recent interview. “We’re just doing that which the private sector can’t afford to do.”

A Livengood hub, with some 400 miles of pipe from the North Slope, offers flexibility for the future, Gottstein said. If the price of gas rises and it becomes economical to sell large quantities commercially, it wouldn’t be a colossal feat to extend the pipeline another 400 miles to Valdez for a future liquefied natural gas plant — a dream of some Alaskans, like defeated Republican gubernatorial candidate Bill Walker — or another 1,300 miles into Alberta and the existing pipeline network leading to the Lower 48.

“It’s an intriguing idea,” said the spokespersons for both Sens. Lisa Murkowski and Mark Begich. State Sen. Bill Wielechowski, an Anchorage Democrat and a leader on energy issues, said precisely the same thing.

Murkowski and Begich, who have both gotten briefings from Gottstein, won’t say more, in part because they are still awaiting word from TransCanada Corp. on its “open season” — the period, closed now for six months, in which shippers bid for space in its pipeline.

Open season agreements are critical for assessing whether TransCanada’s multibillion-dollar pipeline is commercially viable. TransCanada says it has bids, but won’t describe them until it negotiates formal agreements with the bidders.

Gottstein is among many skeptics, including some in the Legislature, who believe there isn’t a chance that TransCanada will come back to the state with reasonable bids.

“People like to believe things are happening, when they’re not,” he said.

Gottstein said he decided to go public with his idea for several reasons:

• The Legislature is getting antsy about a pipeline. Cook Inlet might not produce enough gas for Southcentral residents by the middle of the decade, leading to a number of expensive choices: subsidized drilling for smaller and smaller pockets of gas, building a “bullet line” direct from the North Slope, or importing liquefied natural gas — the “coals to Newcastle” approach.

• The governor is proposing billions of dollars in oil-tax cuts. Gottstein said he’s concerned that the oil companies will “trick us into thinking that by lowering taxes by tens of billions of dollars, we further the pipeline.” The main reason the oil companies aren’t building a gas pipeline is simple economics: The price of gas might be too low in the future to justify spending billions on construction, he said.

• The quiet that has come from TransCanada, which is entitled to up to $500 million in state subsidies as the licensee under the Alaska Gasline Inducement Act, and potentially huge damages if the state breaks the deal. TransCanada once hoped to report before New Year’s that its open season last year had resulted in shipping commitments. Now it’s not giving any target date even as the state continues to reimburse it millions of dollars for its expenses.

Several legislators, including Rep. Mike Hawker, R-Anchorage, have suggested the cutoff date is around July 1. That’s when Dan Fauske, executive director of the Alaska House Finance Corp., is directed by a 2009 law to report on the options for bringing gas to Southcentral, a study that could provoke a special session with action-oriented legislators.

Fauske said Gottstein’s idea won’t get more than a mention in his report because the pipeline stops at Fairbanks.

“It’s not to say it isn’t worth discussing,” Fauske said. But he said he’s troubled by Gottstein’s “adversarial” position to the oil industry, that Gottstein suggests forcing the North Slope producers to deliver gas to a pipeline if they didn’t do it voluntarily.

“I’d rather try to figure out where we have a project where it would entice the oil companies” to invest their own money to move their own gas Fauske said.

Larry Persily, the federal gas pipeline coordinator, said it’s enough to think that Gottstein would spend $6 billion to $8 billion in state money to build a 48-inch pipeline to Fairbanks and a gas treatment plant on the North Slope.

But what happens if the line is built and the gas prices are so low that no one wants to buy North Slope gas, he asked.

“Now you have an $8 billion gas project to serve Fairbanks — that’s the risk. You’re trying to force something that maybe doesn’t happen, and is that the appropriate use of public funds?”

House Speaker Mike Chenault, R-Nikiski, said the idea of a big pipeline to a Fairbanks-area hub gives the state “more options,” though he was noncommittal about the options he preferred.

“At some point in time, we can’t continue to wait,” Chenault said.

Gov. Sean Parnell, a supporter of TransCanada, was lukewarm to the idea.

“If I believed the project could result in lower energy costs for the Interior in a reasonable period of time, I would move on it,” Parnell said in a prepared statement. “The discussion itself is important to advance possibilities for natural gas for Alaskans.”